Buy-side opts for sales traders to combat liquidity slump

Buy-side firms are reverting to traditional sales traders to
help them trade blocks, as algorithms and dark pools fail to deliver
performance in a low-liquidity environment.

Speaking at the TradeTech Liquidity conference in London
yesterday, two prominent buy-side heads explained how they had adjusted execution
strategies to make greater use of sales trading expertise.

“It’s increasingly difficult to get anything done in block
size. Liquidity seeking has become our primary focus and we’re using algos and
dark pools differently,” said Betsy Anderson, head of centralised dealing at
Ignis Asset Management.

“We’re going back to a combination of traditional sales
trading by trading with those individuals who we know are experts in the stocks
in which we’re trying to move big blocks,” said Anderson, adding that algos
were not a silver bullet for liquidity. “It’s very difficult for algo providers
to differentiate themselves in a low-volume, low-liquidity environment. The
only thing we want to do is to get business done in size and leave minimal
footprint, but that’s not something they can offer."

Anderson’s comments were echoed by Dale Brooksbank, head of
trading, State Street Global Advisors (SSgA), who said his firm was
incorporating sales trading techniques alongside the 300 algorithmic strategies
it uses.

Brooksbank said greater use of sales trading at SSgA was
partly driven by the need to deal with increased market complexity, such as the
growth in high-frequency trading (HFT) over the last two years.

“We will look back at where we have interacted with HFT and if there was any reversion. If there are trends that appear to be negative
to our clients then we’ll mitigate those,” Brooksbank said, adding that he also
recognised HFT offered liquidity benefits.

The global financial crisis in fall 2008 has sparked a
significant drop in trading volumes across Europe. Trading figures for the
first six months of 2008 in Europe registered €6.25 trillion, compared to only €4.39 trillion for the same
period in 2012, according to Thomson Reuters Market Share Reporter.